5 Wealth creation
50. The Zambia economy faces many challenges, but,
as the SNDP points out, foremost among these are the need to spread
wealth to rural areas.[62]
Three quarters of rural Zambians live on less than $1 a day and
nationally only 10% of the working population are formally employed,
half in the public sector. The rural poor rely on agriculture,
with their crops providing both food and income. Most farm relatively
small pieces of land, using few inputs of fertiliser and inefficient
methods.[63] As a result,
yields are extremely low and most do not have access to the inputs
required to improve their productivity. Zambia's rural population
is thinly spread, creating its own problems. In addition, access
to finance is limited with two-thirds of the rural population
having no access to any financial services.[64]
The Minister expressed the essence of the problem:
the question is about how much of [Zambia's]
growth is reaching the poor, rather than serving the small but
emerging middle class and the existing elite - and where we can
have greatest impact is being able to seek to get programmes that
address that very hard to reach rural poor, outside Lusaka and
outside the immediate part of the Copperbelt.[65]
51. The Zambian Government proposes to help rural
areas by focusing on 'stimulating agriculture productivity and
promoting agro-businesses, improving the provision of basic services
such as water and sanitation, health, education and skills development'.[66]
In addition, investments in key economic infrastructure such as
feeder roads, water canals, tourist access roads and electricity
access will be undertaken.[67]
Further, rural industrialisation will be pursued in an effort
to increase employment opportunities in rural areas.
52. Investment in roads is a key priority in the
SNDP, but the African Development Bank, the EU and the World Bank
take the lead among Cooperating Partners in the transport sector;
DFID has merely a 'background/silent' role.[68]
The UK has no role in the energy sector where the lead is taken
by the World Bank, Japan and Sweden.[69]
DFID's programmes
53. DFID intends to accelerate wealth creation in
rural areas while improving the broader investment climate, working
closely with the private sector and with large investment programmes
where feasible, including the Private Infrastructure Development
Group (PIDG) and the International Finance Corporation (IFC).
Wealth creation is a new priority and as a result DFID is developing
the following programmes.
· Access to Finance - to increase
access to financial services, particularly for the poor and small
rural businesses; expenditure was planned to be £7million
in 2012-13 to 2014-15 at the time of our visit, but is now planned
to be £15 million.[70]
· Zambia Economic Advocacy programme
- to promote public debate on economic policy issues, strengthening
think tanks with £3.47million in 2012-2016.[71]
· Improved Investment and Trade -
this will support Zambia's ability to attract investment and boost
trade. Spending was intended to be approximately £15million;
the latest indicative figure is £8 million, 2012-2017.[72]
· Rural Market Development programme
- to promote sustainable rural markets in which poor people and
small and medium-sized enterprises (SMEs) can actively participate,
increasing access to markets for smallholder farmers through the
private sector. This was originally planned to be £9million,
2012-13-14-15; at the time of our visit this was put at £13million
2012-15 whereas the latest estimate is £5million 2012-16.[73]
54. DFID explained that the rural market development
programme figures had changed because of the 'prospect of joint
funding with Sweden' so DFID's grant was smaller. There will,
however, be no reduction in the overall allocation to wealth creation.
The Minister informed us that in the rural market development
programme
We are working with suppliers of fertilisers,
seeds and other farm inputs to supply 250,000 smallholder farmers,
but it is above all helping the suppliers to build up networks
of agents to create demand, to aggregate the orders and to teach
farmers how to best use these inputs... That will reduce their
transaction costs, and that helps them to serve a new, previously
untapped, smallholder market.
We will also be giving 100,000 farmers access
to the markets they need in order to sell their produce, so we
are working with farmer organisations to aggregate milk from smallholder
dairy farmers, to supply large dairy processors such as Parmalat.[74]
55. Smallholder agriculture is a key area for
economic growth. We welcome the proposed rural markets development
programme which seeks to increase the productivity of poor smallholder
farmers by strengthening markets for inputs and crops. We note,
however, that there has been a significant decrease in proposed
funding for this project since our visit which is in part explained
by the involvement of the Swedish Government. In its response
to this report the Government should provide more details of the
new funding arrangements for the rural markets development programme.
CDC
56. CDC is the UK's development finance institution
which is owned by DFID which invests money in the developing world.
Last year CDC undertook major reform at the instigation of the
Secretary of State. As a result, CDC's investments will now focus
on the poorer regions of the world and within these regions it
will look to have high development impact and take greater risk.
CDC now has 'more ways of getting our capital to work beyond the
fund-of-funds model. The three primary means of investing are
now:
· Fund investing. This has been the
function of CDC in recent years. CDC will continue to do this,
but there will be changes to achieve: 'business building, creating
jobs and investment in harder places'
· Debt. The direct provision of loan
finance (in all forms) to businesses. CDC is building a team at
CDC to build up its debt portfolio to about 20% of CDC's total
portfolio, particularly in economies that are not yet sophisticated
enough for private equity investing.
· Direct Equity Investing. In recent
years CDC moved away from direct investing, but will return to
build a new direct equity investment portfolio. However, the recruitment
of new staff and skills will take time. CDC aspires to invest
at least US$1bn over the next five years through its direct investment
strategy. The strategy will involve two approaches:
Co-Investment: this will mean CDC will
invest in businesses alongside private equity funds and other
development finance institutions (DFIs), enabling it to build
on existing relationships and to use the expertise, resources
and local staff of partners
'Corporate Pioneering': CDC will build
a small number (about one per year) of businesses, ramping up
to become major investments over time ($50-200million). These
businesses will expand into new challenging markets and countries.
CDC will develop high-calibre local management and invest over
very long (10 years+) periods. The corporate pioneering approach
will take 1-2 years to begin.[75]
57. At the end of 2011 CDC had eight investments
through funds in Zambia totalling approximately £5.2million.
CDC's investments include businesses in financial services, agribusiness,
mining and real estate. CDC told us that it was currently undertaking
due diligence on a proposal 'that would far outweigh CDC's current
level of investment in the country'.[76]
58. CDC states that Zambia's large geographical size,
relatively small population and lack of regional integration have
meant that there have been few good opportunities to invest for
the fund managers they have worked with in the past. CDC now see
this changing as some of its new partners were 'now targeting
opportunities, particularly agribusiness, in the country.[77]
59. During the visit, we found it at times difficult
to distinguish the respective roles of DFID and CDC were, particularly
following the reforms to CDC. We asked CDC a number of questions.
Is CDC just another source of funds that people trying to do private
sector projects go to? What is the role of DFID in introducing
businesses to CDC? Are DFID staff being trained to address this
question? Rod Evison, Managing Director, Africa, CDC, told us:
I have been in CDC for 20 years, and where DFID
ends and CDC starts has changed for both of us during that period...Going
back to the time of Project Atlas and the creation of Actis, DFID
was thinking more about health and education, and CDC was thinking
more about capital mobilisation. We were moving in rather different
directions at that point in time, which was not helpful from the
point of view of co-operation...now ...each of us is coming to
meet the other. Certainly we in CDC are excited by the possibilities
for much more active dialogue with DFID, both here in London but
also on the ground with the offices... at the moment our constraint
is people and resource: people to have the conversations.[78]
Diana Noble, the Chief Executive Officer of CDC,
observed that there was an opportunity to engage much more with
DFID, both in London and in the offices, to see how their growing
private sector initiatives could be 'synergistic' with CDC's,
adding:
These are really early stage conversations, and
it is a theme that you are right to highlight. It needs to be
on our agenda over the next year, from both sides, frankly: from
ours and from DFID's[79]
60. Following CDC's reorganisation, we see a major
role for the organisation in initially co-investing and subsequently
directly investing in Zambian businesses. This will generally
be more appropriate than DFID providing grants for private businesses.
We recommend that CDC and DFID Zambia work closely together.
62 On more general concerns on the business community
see Ev w8-11(Mark O'Donnell) Back
63
On the important role of small holders, see Ev w6-7 (International
Development Enterprises) Back
64
Ev 28 Back
65
Q 50 Back
66
SNDP Summary, p 3 Back
67
Ibid. Back
68
JASZ II, Annex 2, p 5 Back
69
Ibid. Back
70
See Table 1 above; NB this programme s under design and the figures
are indicative. More precise figures for expenditure will be determined
during the design phase of the programme. Back
71
Ibid. Back
72
Ibid. . Back
73
Ibid. Back
74
Q 57 Back
75
Ev 21-23 Back
76
Ev 23 Back
77
Ibid Back
78
Q25 Back
79
Q21 Back
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